Chapter 1 What is Economics? Section 1 Scarcity and the Science of Economics

I. Explain the nature of scarcity and show its relationship to economics. A. TINSTAAFL – There is no such thing as a free lunch. B. Scarcity – The condition that arises because society does not have enough resources to produce all the things people would like to have. C. Unlimited Wants – Limited Resources

II. Describe the factors of production. A. Land – “gifts of nature” not created by human effort.

II. Describe the factors of production. B. Capital – tools, equipment, and factories used in production.

II. Describe the factors of production. B. Capital 1) Financial Capital – money

II. Describe the factors of production. C. Labor – people’s efforts, abilities, and skills.

II. Describe the factors of production. D. Entrepreneurs – risk taker in search of profit.

III. Examine the three basic economic questions each society must decide. A. What to Produce? B. How to Produce? C. For Whom to Produce?

IV. Define economics and identify the four key elements within its scope. A. Description – What is produced and who gets how much. B. Analysis – Why are prices what they are?

IV. Define economics and identify the four key elements within its scope. C. Explanation – It is useful and necessary to communicate to others economic activities. D. Prediction – Anticipating consequences of different courses of action.

END OF SECTION 1

Chapter 1 What is Economics? Section 2 Trade-Offs and Opportunity Costs

I. Understand that trade-offs are present whenever choices are made. A. Trade-off – An alternative choice. B. Decision-making grid - A tool that can be used to help make an economic decision by identifying alternatives and criteria to evaluate.

II. Discover Opportunity Costs A. Opportunity Cost – The cost of the next best alternative when a choice is made. Refers to the value of a trade-off. Incurred when trade-offs are made.

III. Evaluate the opportunity cost of production possibilities frontiers. A. Production Possibilities Frontier (PPF) Diagram representing various combinations of goods and services when all resources are fully employed. Guns and Butter

III. Evaluate the opportunity cost of production possibilities frontiers. C. Characteristics of the PPF 1) Illustrates the concept of opportunity costs. 2) Based on full employment of all productive resources. 3) It is used by economists as a tool for description and analysis.

III. Evaluate the opportunity cost of production possibilities frontiers. D. When a country produces on its PPF, The decision to produce more of Product/Good A means, Less of Product/Good B must be produced.

END OF SECTION 2

Chapter 1 What is Economics? Section 3 Basic Economic Concepts

I. Understand the difference between needs and wants, and goods and services. A. Need Basic requirement for survival. Physical or emotional. Oxygen, water, and food. B. Want Means of expressing a need. Specific example of a need. Can live without.

I. Understand the difference between needs and wants, and goods and services. C. Goods Tangible commodity 1) Consumer good 2) Capital good 3) Durable good = 3 + years 4) Non-durable good = < 3 years D. Service Work that is intangible

Explain the relationship among value, utility, and wealth. A. Value Worth expressed in dollars and cents. To have value, there has to be utility. B. Utility Capacity to be useful to someone. C. Wealth The sum of economic products that are tangible, scarce, useful, and transferable.

III. Describe the importance of productivity. A. Productivity The efficient use of productive resources. B. Specialization Do whatever task you are able to do best.

III. Describe the importance of productivity. C. Division of Labor Workers perform fewer tasks more frequently. D. Human Capital The sum of skills, abilities, health, and motivation of people.

IV. Understand the importance of economics to the American free enterprise system. A. Economic interdependence Actions in one part of the country or the world have an economic impact on what happens elsewhere.

IV. Understand the importance of economics to the American free enterprise system. B. Market Location or other mechanism that allows buyers and sellers to deal or exchange economic products.

IV. Understand the importance of economics to the American free enterprise system. C. Standard of living Quality of life. D. Free Enterprise Economy Consumers and privately owned businesses make the majority economic decisions.

END OF CHAPTER 1